Arjo AB (publ)

Welcome to the ARJO Q2 presentation for 2025. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to Interim President and CEO Niklas Choseverd and Interim CFO Christopher Carlson. Please go ahead.

Thank you and good morning to everyone and welcome to ARJO's Q2 2025 earnings call. With me here today, I have, as you heard, Kristoffer Karlsson, our Interim CFO. We will give you some details on the Quarter 2 report that we released an hour ago. And the agenda looks as usual, includes a summary of activities and results from Quarter 2, the balance sheet items and the outlook for 2025, before we open up for questions. We intend, as always, to keep this call to an hour and finish no later than 9 CET. Next slide, please. We closed the quarter in a solid way and could see how demand continued in the quarter with organic net sales growth in line with our targeted range. We had continued strong momentum for our service and rental business and now also supported by growth in our capital sales. Our North America business is the growth engine in the quarter too, while global sales is held back due to difficult comparisons. And we closed the quarter with 3.0% organic net sales growth. And in addition, as a positive sign for the second half of 2025, this net sales development is supported by a significant stronger order intake growth. In our largest market US, we continue to see a positive development, and this is related to a combination of our internal efforts to create a more focused US sales organization, as well as the financial situation and staff shortages improving among our customers. In global sales, we had difficult comparisons with last year, with a strong quarter two last year. We still see several countries in Europe with improving demand. For example, France, Germany and Italy had good growth. But UK couldn't match last year's sales levels. Our gross margin came in at 43.4%, almost at par with last year's 43.6%. We continue to get support from lower material cost and price adjustments, while these improvements are offset by currency and tariff headwinds. For the rest of 2025, we will continue to drive efficiency focus throughout the value chain, based on the plans that we have put in place, for example within supply chain. Our focus on price adjustments will obviously also remain to secure compensation for salary inflation and US tariffs. On the OPEC side, we have been able to slow down the cost increase versus quarter one, and our efforts to increase cost efficiency are now showing effect. Adjusted EBITDA for the quarter was 475 million SEK versus 496 million SEK in quarter two last year. A reduction coming from currency and US tariff headwinds. Neutralized for currency and US tariff headwinds, the adjusted EBITDA would have increased, showing a stable underlying business. Our operational cash flow came in at 205 million, leading to a cash conversion of 47% for the quarter. For those knowing our business, you know that the first half of the year is from a seasonality perspective weaker in cash flow and cash conversion, and it will improve during the second half of the year. In summary, we are delivering a stable second quarter of 2025. Our underlying business develops in a solid way and we can see how our business model with capital, rental and service is helping us to deliver stability in growth and underlying earnings trend. In addition to this, we see several important markets showing good signs of increased activity level and healthy demand for our products and solutions. We now have three quarters in a row with higher order intake than sales growth. And we are having a strong order book for the quarters to come, making me believe in a stronger second half of 2025. Next slide, please. Our North America business grew double digit organically in the quarter, with US as the main growth engine. In our largest market, US, we have a continued strong and positive development also in this quarter. The double-digit growth in US in the quarter was seen across our product categories. Rental and service continues to drive growth and is developing well. On the capital side, demand is becoming stronger for every quarter and it's mainly driven by our important patient handling product category. where we also see very positive reception for our newly launched Maximum 5 patient floor lift. We had a continued strong development in Canada, where it's especially our long-term care business that is driving the growth, also with good profitability levels. Canada is now having more than 20 consecutive quarters of growth. Then over to Western Europe and the rest of the world that make up our global sales region. In Q2, this region declined net sales with minus 1.8% due to difficult comparisons from last year Q2, combined with a weaker than expected market in UK. In Western Europe, the comparison to last year is tough and we declined minus 2.4% versus last year Q2. In addition to the difficult comparison, UK is weaker than expected. It is related to delay in some larger orders and we will need to focus on a catch up in the second half. Countries with good demand and strong organic net sales growth in the quarter was France, Germany, Italy and Spain. Our service and rental business in Western Europe continue to develop well in the quarter. Overall, we see good signs for the second half of the year in this region due to strong order intake and a healthy order book. Our business in rest of the world had an organic net sales growth of plus 0.5% in the quarter with a mixed picture across the markets. India, Singapore, United Arab Emirates all grew double digit in the quarter where India stands out with an impressive 40% growth. We see good signs for the second half of the year in this reading as well, due to strong order intake and a healthy order book. Next slide, please. Our gross margin came in at 43.4%, almost at par with last year's 43.6%. We continue to get support from lower material costs and price adjustments, while these improvements are offset by currency and US tariff headwinds. Neutralizing for currency and US tariff headwinds impact, our underlying margin is improving versus last year. We are, as before, working hard to mitigate the headwinds with continued long-term efficiency gains throughout the value chain, including solid focus on continued supply chain efficiencies. We will also continue to work on price adjustments as one part of the puzzle to mitigate US tariffs and other external cost increases. Next slide, please. Adjusted EBIT in Q2 declined versus last year, only due to currency and US tariff headwinds. Neutralized through currency and US tariff impact, EBIT would have been improving, showing a stable and improving underlying business. On the OPEC side, we have been able to slow down the cost increase versus Q1, and our actions to mitigate the cost increase in Q1 is showing effect. And I am happy to see the response from the organization after Q1, with now much sharper focus on cost improvements in quarter two. And I believe we have set the tone for the rest of the year to manage OPEX in a good way. We had a negative effect from the evaluation of AR and AP of two million in the quarter, booked under other expenses. This was minus five million in the same quarter last year. Adjusted EBITDA for the quarter was, as I said, 475 million SEK versus the 496 million SEK in quarter two last year. A reduction coming from currency and US tariff headwinds. As I said, neutralized for currency and US tariff headwinds, the adjusted EBITDA would have increased. Also here showing the stable underlying business. Restructuring cost came in at minus 34 million in the quarter. It's related to our change of go-to-market approach in China, as well as ongoing improvements in our global sales structure to improve the cost situation for the future. Next slide, please. And here I hand over to our Interim CFO, Christoffer Karlsson.

Thank you, Niklas. Operating cash flow improved slightly compared to Q1 2025, that was 140 million SEK lower year over year, primarily due to build up in working capital and lower EBIT. The increase in inventory reflects strong order book performance, upcoming rental investments and newly launched products. These new products temporarily raise inventory levels before older ones are phased out. Additionally, we had a temporary cash flow impact of 50 million SEK due to a VET settlement, which we expect to recover in Q3. Excluding this, receivable collection would be in line with last year. As a result of the working capital build up, working capital days increased to 83, up from 81 in Q1 2025. Combined with the low profitability, this led to an operating cash flow of 205 million SEK, down from 344 million SEK in Q2 2024. Consequently, cash conversion was 46.7% compared to 69.7% last year. Adjusted for the VET settlement, cash conversion would have been about 59%. That said, cash flow typically strengthens in the second half of the year and we remain on track to reach our full year target of 80%. For reference, cash flow from investing activities was 171 million SEK compared to 112 last year. increase is mainly due to 22 million higher investment in rental fleet as well a new office in france and a distribution center in sydney australia next slide please the increase in net debt this quarter is mainly due to lower operating cash flow and higher rental investment and the 259 million sec dividend payout to shareholders our financial net improved to 48 million SEC, 17 million SEC improvements versus Q2 2024. And it's driven by lower interest rates. Despite the seasonal impact, our cash position remains strong. Net debt to adjust the EBITDA was 2.3, slightly down from 2.4 in Q2 2024. Excluding the VAT assessment, it would have been 2.2, which is then within the normal seasonal variation. Our equity ratio stood at 48.7%, down from 51.2% in Q1 2025, mainly due to the dividend and some FX effects. With that, I hand it back to you, Niklas. Next slide, please.